Snap misses across the board for Q2 earnings, stock gets whacked

Snapchat maker Snap Inc. missed Wall Street’s expectations for its second quarter as a public company, sending its stock diving more than 16% in after-hours trading to an all-time low.

The number of daily Snapchat users only increased by 7 million from the first quarter; analysts were expecting that number to go up by 10 million. Snap also fell short of the Street's revenue expectations. And the company's net loss ballooned to $443 million, compared to $116 million at the same time last year.

But it wasn't all bad news. One bright spot: The company did manage to grow its average revenue per user for the quarter to $1.05 from $0.50 in the year-ago period, a healthy increase of 109%. Snap executives have argued that they can meaningfully grow the business by making more money off existing users, rather than by relying on fast-paced user growth.

Here are the key numbers from Snap's Q2 earnings:

Revenue: $181.7 million vs. $189 million expected.

Earnings per share (adjusted): Net loss of $0.16 vs. $0.15 expected

Daily active users: 173 million vs. 175 million expected.

Even before the earnings report, Snap's stock had already fallen off a cliff since its hotly anticipated initial public offering earlier this year. Investors have worried that the app maker won't be able to grow its ad business in the face of mounting competition from Facebook.

Also weighing on the stock: Employees will also be able to sell their shares on the public market for the first time next week, presenting an ultimate test of confidence in the company.

Earnings call live blog:

It was hard to escape Snapchat's dancing hot dog filter on the internet in recent weeks.Screenshot

CEO Evan Spiegel kicked off this quarter’s earnings call with analysts. He highlighted the fact that Snap added 4 million more daily users in North America, the world’s largest ad market. He also said that 25% of people in the US, UK and France with smartphones use Snapchat every day.

The average daily user of Snapchat creates more than 20 messages, or "snaps," per day, according to Spiegel. That’s high engagement.

Spiegel praised Snapchat’s famous dancing hot dog, calling it the "world’s first augmented reality superstar.” He said the hot dog, which has generated quite a few memes, has been viewed 1.5 billion times in the app.

Stories created by Snapchat's Discover partners saw a 30% bump in viewership this quarter, per Spiegel. He also touted the success of the company's early shows effort, with one called "Phone Swap" getting picked up for TV and another winning an Emmy award.

Spiegel touted Snapchat’s Memories feature, which acts like a camera roll for saving photos and videos that would otherwise expire. 250 million snaps are saved to Memories every day, and Spiegel said he sees the feature becoming a "more important part of Snapchat experience in the future."

Spiegel and his cofounder, Bobby Murphy, will not sell shares this year. Investors have been worried about the volatility of the stock, with a post-IPO ban on employees selling shares expiring on Monday. "We believe deeply in the long term success of Snap," Spiegel said.

Chief Strategy Officer Imran Khan said that 60% of Snap ads are now delivered programmatically. Snap’s ad business has been off to a slow start, but this uptick in the automated selling of its ad inventory is a good sign that its fast growth will continue.

81% of Snap's second-quarter revenue came from North America, a strong indicator that the company is focusing on monetizing users in the world's largest and most valuable ad market.

Sales of Spectacles, Snap's eyeglasses with built-in cameras, fell during the second quarter, per Drew Vollero, the company's chief financial officer. Snap's "other" revenue, which is mostly comprised of Spectacles sales, was only $5.4 million, down from $8.3 million in the first quarter.

Snap spent "slightly more" than 200 million in cash on acquisitions during the second quarter, but it wouldn't say exactly how that money was spent. Its confirmed acquisition of the ad company Placed will be reflected in its third-quarter financials, as that deal was closed in July.

Spiegel declined to offer details about how Snapchat’s recent maps feature has affected engagement with the app, but he noted that the feature can be "used for discovery, and not just for directions." That seemed to suggest that Snap thinks it will eventually have opportunities to sell ads within the feature.

People under the age of 25 use Snapchat for 40 minutes on average every day, which is 10 minutes more than Instagram's latest stat for the same demographic.

There was a cringe-worthy moment to finish the call. An analyst asked Spiegel to specifically explain the so-called growth-hacking techniques — things like sending lots of push notifications that are designed to boost app usage — he opposes. Spiegel gave a non-answer, and the analyst was heard laughing and saying, "I didn't even understand his response" before his call was cut off. Hot mic fail!